Levered Beta Calculator: Optimize Your Financial Risk Assessment
Levered Beta quantifies how debt magnifies a stock’s market swings. Compute it with βL = βU × [1 + (1 – t) × D ⁄ E]. Because the U.S. federal corporate tax rate sits at 21 %, leverage raises equity risk about one-fifth less than in a tax-free scenario (IRS, 2023).
Levered Beta Calculator
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How to use the tool
Unlevered Beta: Type the firm’s business-risk beta (e.g., 0.60 for a utility; 1.80 for a startup).
Tax Rate: Enter the statutory rate as a decimal—0.22 (22 %) or 0.33 (33 %).
Debt: Input total interest-bearing debt, such as 450 000 000 or 950 000 000.
Equity: Provide market value of equity—700 000 000 or 400 000 000.
Calculate: Press “Calculate Levered Beta” to read the result in seconds.
Typical levered betas range 0.5–2.0 across U.S. sectors (Damodaran, 2023).
Federal corporate tax rate: 21 % since 2018 (IRS, 2023).
Median S&P 500 debt-to-equity ratio: 1.4 (S&P Global Market Intelligence, 2023).
CAPM uses beta to price equity risk premia (Sharpe, 1964).
“Beta measures systematic risk relative to the market” (Investopedia, Beta Definition, URL).
FAQ
What does Levered Beta tell you?
It shows how your company’s equity volatility responds to market moves after considering debt financing (Damodaran, 2023).
How is Levered Beta different from Unlevered Beta?
Unlevered Beta reflects business risk only; Levered Beta layers in financial risk from leverage (CFA Institute, 2020).
Can Levered Beta be negative?
Yes, if the stock consistently moves opposite the market, but such cases are rare and transient (Investopedia, Inverse Beta).
How does the tax rate affect the calculation?
A higher tax rate lowers the leverage impact because interest is tax-deductible, reducing (1 – t) (IRS, 2023).
When should you recalculate Levered Beta?
Update it after major debt issuances, equity raises, or annually for routine valuation (PwC, Valuation Guide 2022).
What Levered Beta indicates average market risk?
A value near 1 signals equity volatility roughly equal to the market benchmark (Damodaran, 2023).
How does debt-to-equity ratio influence Levered Beta?
Higher D⁄E raises the bracket term, boosting Levered Beta and required returns (S&P Global, 2023).
Why is Levered Beta important in CAPM?
CAPM multiplies Levered Beta by the equity risk premium to estimate cost of equity, a key valuation input (Sharpe, 1964).
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